Some commision realities about IB and Tradestation

Discussion in 'Retail Brokers' started by jay123, Oct 24, 2003.

  1. jay123


    Listen we all know that IB advertise their commission structure for U.S.stocks as .01 for the first 500 and .005 for everything above that per order. Now we also know that as of right now tradestation is .012 for the first 500 then .006 for everything there after as well for U.S. Stocks.

    Here is the actual reality of what commissions really cost you with these places when applied to real life trading. Its basically .01 per share for IB and .012 per share for tradestation plain vanilla. They are actually both quite expensive brokers, yes you heard me quite expensive for these times anyway.

    Let me explain why:
    The reason is one simple gimmick that both IB and Tradestation both employ and keep hush hush and that is.......
    When you change the price of a limit order you automatically reset your trade back to square one and the .01 applies again. Let me illustrate as an example.

    MR TRADER wants to buy 1000 shares of NTES and it's trading currently at lets say at 60 x 60.1 . So MR TRADER places a limit order to buy 1000 shares at 60.1 because he wants to get in on the momentum so he is willing to take the offer and get in on the trade but he places a limit because MR TRADER is not a dummy. Well MR TRADER in real life as it will happen most times gets filled on 500 shares and then the market moves up on NTES to 60.1 x 60.2. Well MR TRADER wants this stock he knows its good for a big run intraday so he is not going to sit there and passively bid now at 60.1 so he changes his price to 60.2 and gets filled on his remaining shares at 60.2. He is now in NTES with an average price of 60.15 for 1000 shares nice job MR TRADER.
    Now IB is in the background snickering as they just charged MR TRADER 10 bucks for this trade instead of 7.5. Why? Because once MR TRADER changed his price he automatically reset his order according to boths firms policies and thus they charge MR TRADER .01 on the second 500 share fill instead of the .005. This is a fact of how IB and tradestation both pull the wool over their customers eyes as they both advertise how their commission rates save their customers money.

    Now in a real world situation I have been trading for many many years and I can say changing price on a limit order happens on average in around 80% of my trades, thus its very safe to say that on average the true cost of trading at IB is nearer to .01 per share and at Tradestation its .012 per share.

    Now I called while I had accounts at both places and spoke with managers about this scenario and said how very deceiving it was to have the commission structure reset on the same order simply because a limit price was moved up or down due to a partial fill. I said to both managers that it must be a very fattening revenue builder and boom to your bottom line to not allow orders that are changed to be kept as one order that is being changed at .01 for the first 500 and .005 for each there after. Both managers at both firms each said to paraphrase, "thats the way its is something we don't publicize but I know its pretty awful when you think about it."

    Anyhow, this is the truth as to how I now view these brokers as far as commissions are concerned. Let me say IB is a very fast broker and quite useful with the Universal Account and I do like them. TradeStation as well has tremendous usefulness; however I think its really overdone how both these firms paint a halo over their heads as being the savior of the retail trader in regards to commissions savings. I find it quite offensive when you total up your true commissions at the end of each day.

    You can thank the inability to change an order without it reseting as a new order in IB's and Tradestaions "eyes" for this. Is IB and tradestation aware of this? OF they care of course not Its their unadvertised way of making the real money on their customers.

    These are my rants on both of these companies.....It may not be what some want to hear but this is the truth. Look at your statements month to month. Give them a Call and talk to them about it. It will certainly open your eyes.

    Happy Trading!
  2. If you can't buy/sell enough stock at your price, why blame the broker?

    What alternative do you have in mind?

    Seems to me if IB or TradeStation were FREE in terms of commissions, *some* people would still complain!
  3. jay123


    Your read this compeltely wrong. I am not blaming the broker for a stocks liquidity. I am simply stating the true cost of trading at Tradestation and at IB, period. Would I complain if its however just as Tradestaion and IB go out of there way...especially tradestation, to tell/advertise to you about their commision plans it is the right of a consumer to post what is the true cost of those plans. You dont think these brokerages know that in the end they are truly receiving in much higher amounts of commision per trade then what they advertise in the way of misleading unrealistic trading examples? Of course they do these are mutlit million dollar firms that do their homework in advance.

    Once again I am not blaming them for liquidity in stocks...not once.
    Its about how they handle changing orders and how it then becomes a new order thus reseting the commision schedule back to square one. It is a serious thing to keep in mind because the scenario of changing limit orders while trading occurs at least 80% or higher during trading.
  4. I wanted a free toaster or waffle iron when I opened my account. After all, banks provide those for new accounts no? Hmmm, waffles sound good right about now ...

    Def, any plans for waffle irons? Maybe if we all contact the company something can come of the effort.

    Re: the original post. If the trader wants to catch momentum on a China internet stock he ought to get a clue and choose his limit prices better.

    Now off to make a phone call ... :p
  5. jay123


    Excellent response...although the choice of security is irrelevant as it was used for illustrative purposes only. Had I said a slow NYSE stock like GE the outcome would be the same and more likely than not you would have to change your limit order as well. Of couse had I chosen GE someone like yourself would have said if the original poster wants to choose one of the larget business in the world to place a trade on then he ought to get a clue and choose his limit prices better. So far the fact remains and the truth of IB and Tradestation is a reality in regards to their commision structures. Of course I'm sure IB and Tradestation principals are happy to see the ostrich's head in the sand syndrome continue on as is illustrated the replies of that have not come from the orignal poster.

    Oh yea I'm off to make a phone call now...:D
  6. def

    def Interactive Brokers

    Jay, we are not pulling the wool over anyone eyes and I will not apologize for a second that your commission resets to 1 penny when you modify a price. BTW, are we pulling the wool over anyone's eyes when we don't charge SEC or ECN fees and are only charging a $1 minimum?

    Do you realize that there is a cost to a modification of an order. You change a price and we need to send a cancel/modify to the exchange. This takes bandwidth and throughput and that is a real cost.

    Finally, do you also realize that we offer relative orders that allow you to enter in a higher price and work the bids? Why not give this order type before complaining.
  7. blb078


    since the stocks going to move anyway, just place a damn market order and stop bitchin' or place a limit a couple of ticks abouve the current market, you'd be surprised how close you get filled to the current market anyways, as long as the broker isn't dilberately holding your order who cares, that the way the market is, or just trade more liquid stocks.
  8. kowboy


    Jay, who do you trade with now? You failed to mention that. We are always looking for a better alternative.

    Thanks for a reply. Kowboy
  9. jay123


    Hey Def, glad to have your reply to this thread. Your costs of SEC fees and ECN fees are not being charged "directly" this is correct. However Def, it would be foolish of you to think I belive for one second that those charges are not added in behind the scenes to the overall commison structure that was developed for IB retail customers. If SEC fees and ECN fees are mandatory are you telling me your firm just "eats" them. Are you telling me that they are not built in to the business model when your firm forecasts what their TRUE revenue will be from commissions and how to obtain that revenue when applying real life pattern and behavioral characteristics of order fill in the stock market? You yourself just said that to cancel/modify costs money. This statement in of itself is your way of saying that IB is aware of business costs and thats your business has to transfer these costs to the end user in order to survive and turn a profit. Its sensible and I applaud it, its good business. However don't then take the other end of the spectrum and say that your firm is doing a favor not charging ECN and SEC fees for its customers. Are we to assume that after you state that IB has business charges that I may not be aware of (aka cancel/modify fees) , that when it comes to ECN and SEC fees your firm then becomes altruistic? No sir! Its built in to your commission model indirectly, its just not broken out and thus your firm can make marketing statements like HEY we don't CHARGE ECN OR SEC FEES! (shhhhh directly) Furthermore, Def I didn't ask you to apologize. I am just stating real life facts that are irrefutable when I or any IB customer looks at their monthly statements or does simple math. Of course I know IB is a business and it costs money to run + you need to make a profit in order to stay in business and provide a b/d service. I applaude IB for their business model, however as a customer it is my job to point out or make more clear the overall costs that I pay because of that adopted business/commission model. Its called business/customer relations and happens all the time.
  10. kowboy


    So Jay, are you saying you are an IB customer, and there is no better alternative that you could recommend? Or What?
    #10     Oct 24, 2003